As we enter the second half of the year, the outlook might appear grim at first glance. Covid-19 continues to spread, both here and worldwide. Inflation remains close to 40-year highs, and the Federal Reserve (Fed) is tightening monetary policy to fight rising prices. The war in Ukraine is ongoing, and it threatens to become a long-term conflict. Midterm elections loom in the U.S. Looking at the headlines, you might expect the economy to be in very bad shape.

On the contrary, though, the news is largely good when you look at economic data. Job growth remains strong, and the labor market is still very tight. Consumers are out there shopping despite an erosion of confidence caused by inflation and high gas prices. Businesses, driven by consumer demand and the labor shortage, continue to hire as much as they can, and to invest when they can’t. In other words, despite the headlines, the economy remains not only healthy, but strong.

Unfortunately, markets are reflecting the headlines more than the economy; they’re down substantially from the start of the year. They tend to do this in the short term. A growing economy, however, generally supports markets, which gives us hope that the recent stabilization will continue, and even that markets might start to recover in the second half.

That isn’t certain, though, so the question is: With so much in flux, what does the rest of the year hold? As always, the answer is to look at the fundamentals, not the headlines.

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